Sunday Evening 28 August 2011
The time worn statement is so very true in futures trading: Timing Is
Everything! The soy bean market, in particular, is a great example,
and we will show that, shortly. Starting with corn, our last buy
recommendation was 19 August when we entered a buy order at
721.50. While there was still some overhead resistance that could
be problematic, the reversal bar with a wide range and high end
close was a strong statement near an important potential breakout area.
A few days later, the range on corn, above 7.40 was small, and the
close was weak. A small range near a key area can be an indication
that sellers are preventing the range from going higher, so we opted
to liquidate half the position, as a caution, and either buy on a pull-
back or new highs. On Friday, at the end of the first 30 minutes of
trade, the strong bar and high end close was a signal to go long,
shown at "Repurchase" on the chart.
At the time, it was the high of the day, and a lot of people are
reluctant to buy new highs. If a move is to be any good, or
sustainable, the new high was a sign that higher prices are coming.
By the close, Dec Corn closed at 752.5, over 12 cents higher from
entry. The 749.75 entry was confirmation that the apparent
weakness a few days earlier was just a breathing spell for buyers,
which was not known, then.
The weekly chart, not shown, tells us there are still some resistance
levels along the way, but Dec corn has been showing strength that
cannot have been ignored. Corn should continue higher, although
at some point, it can retest the breakout 740 area.
Here is a market that shows why trading for the past several months
has been so difficult. Many markets have been in broad trading
ranges, to some degree, and this Nov bean chart show a relentless
up and down market since February. For most traders, there has
been little to recommend for a position in beans, and this is why we
mentioned at the outset that timing is everything.
We have been watching this market for a few months with a view that
the market was under important accumulation, setting the stage to
eventually go higher. [Soybeans - Under Accumulation?, 11 May
2011]. We discuss this more in the weekly chart following.
What is important on this daily chart are the number of retests of the
February high. Each time price reached the $14 area, there was a
sizeable correction to follow. From the August low, Nov beans have
been uncorrected in their rally back to 14, five trading days ago.
Given how corrections have followed in previous rallies, it is hard
to buy any market that has not had a correction, and this one was
again at important resistance.
Two pieces of information led us to believe that "this time, it
would be different." Observation number one was that in previous
corrections, there was a wide range bar with a poor close that
warned of lower prices. In the 3rd, 4th, and 5th bars from the right,
where price was trading just under 14, there were no wide ranges
with a poor close, at least yet. The second, and more compelling
observation was that this was the FOURTH retest of the February
high. Because of that, we did not expect to see another high range
bar down with a poor close.
We make these comments because it is so very critical to be aware
that the market's own activity sends out important messages of its
intent. Here, the market was saying, "Get ready, because we are,"
if the market had a voice, but the chart formations are that "voice."
Every time an area gets tested, it is a probe to see if price can go
higher, [lower in down markets], and the more time an area is tested,
the greater the probability it will give way. While beans failed three
times to hold the $14 area, the fact that it had the ability to come
back for a fourth time increased the odds of successfully working
enormously. Those increased odds are what provides an edge for
taking a position.
If beans are to go higher, they have to make higher prices. Simple
logic, but with a purpose. Buying under 14.11 has proven to be
detrimental for previous long positions for the past seven months.
That brings up another point. The farther price moves along the
right hand side of a trading range, the closer it is to a resolve in
leaving the range, one way or the other. We digress, but this could
as easily, and should have been mentioned as a third observation.
Sometimes, stored knowledge is built in to how one sees the market,
almost as a given.
Because this was the fourth test, it meant there was an edge to buy
new highs, with the same premise as was made in Dec corn, so a buy
stop above previous highs, if triggered, would be the market saying
it is going higher. Can it be risky to pay the highest price in seven
months to establish a new long position? Absolutely! When put into
the context above, the odds favored continuation, and once again,
the market was advertising an edge for the long side. Price closed
12 cents above entry.
In both instances, corn and beans, the market can still fail, for anything
can happen. There is no evidence that either will fail, at this point, so
we can only deal with the known information, and it has been quite
Weekly chart, next...
We include this to show why quality trades have been scarce in most
markets for 2011. Look at how price has been moving without direction,
as in a trend. This has been true in the stock market, oil, and many
currencies. What we know for sure, as was outlined above, that as
markets move to the right hand side of a trading range, opportunities
lies in wait, and the Nov bean trade is one such example.